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Address to the Ahuriri Rotary Club - Cullen

Monday 23 April 2001
Speech Notes
6.00 PM MONDAY 23 APRIL 2001
Address to the Ahuriri Rotary Club.

Dr Michael Cullen's address to the Ahuriri Rotary Club, Napier Sailing Club, West Quay, Napier

Thank you for inviting my wife, Anne Collins, and I along tonight. We are grateful for your hospitality. Napier, of course, is Anne's city of birth and upbringing and I often think her parents, Brian and Lowson are better known here than I am. We moved here two and a half years ago and are loving living here.

Tonight you have given me the toughest task you can ever give a guest speaker – asking me to speak about nothing in particular. Now you may think that is the easiest thing any politician can do - after all most people think our job is to say nothing at great length.

I've been a politician for twenty years and during that time I've learnt that speeches come in three sorts. The hardest are those for which there is no topic set before hand. The middle sort are the funny ones – especially fundraising humorous debates. And the easiest are serious ones about politics which I can do off the top of my head.

And then I was told you didn't want anything political. But I assume what was really meant by that was something which was, in essence, party political - supporting my lot or rubbishing the other lot.

I understand that. We spend too much time doing that anyway and when we hold public meetings to do it where people are completely free to turn up or stay away very few choose the former.

On the other hand (however many hands politicians have used up, we always have another one) to avoid anything political altogether would be a bit like inviting Kiri te Kanawa along and listening to a speech about knitting. You would be tempted to ask, "Yes, but is that what you do most of the time?"

So, I'm going to stick to my knitting but in a non-party political sort of way. The objective, of course, is that you will be so totally impressed with my impartiality, honesty and wisdom that you will decide to vote Labour!

Since in 4 ½ weeks time I will be presenting my second budget I thought I might talk a little about the process of how a budget is put together and what sorts of problems that process highlights.

Budgets used to be the single most important piece of political theatre in the year. They were shrouded in secrecy. Ministers of Finance would leaks bits of news while preparing people for the very worst. Tobacco and beer prices would tend to go up and rabbits, some dead and some living, would be pulled out of the hat to gasps of horror or awe, as the case demanded.

This has all changed and I intend to continue and intensify the process of demystifying the budget. The essence of the modern budget is not to have surprises. For example, changes in excise duties normally occur outside of the Budget itself.

Moreover, the basic framework has been already long revealed in the Budget Policy Statement issued in December. Having set the framework the Government cannot afford to modify it substantially as this will lead to the dreaded disease known as financial market uncertainty which is to the financial markets what pimples are to teenagers.

I also hold the view that the Budget is not the place for the Government to make all its important policy announcements. The Budget is about the government's fiscal priorities – which inevitably includes major policy considerations. Also inevitably, that means some policy announcements get made in the context of the Budget.

But that is no reason for the Budget to be the time and place where most major policy announcements are made. Apart from anything else,
that overemphasises the power and importance of the Minister of Finance as if he (or she) is far and away the first among equals as far as the Cabinet Ministers other than the Prime Minister are concerned.

The process of putting together the Budget begins in earnest about October. A small group of Ministers – the Budget Ministers – are responsible for overseeing my work in putting together the Budget Policy Statement. This sets out in broad terms the overall planned revenue and spending targets for the next Budget and is issued in mid-December.

Budget bids from Ministers are received during February and in March the so-called ''bilaterals" occur.

The spending proposals always far exceed what has been determined to be the available amount of money.
In that sense being Minister of Finance is a bit like being a parent with a large number of teenagers. It can be fun, exhausting, and somewhat predictable. The BPS has already largely determined the total amount of net new spending and, give or take a bit, the bids have to be whittled down to fit within that constraint. That means my nickname in Cabinet could well be Dr No.

What this process has thrown up is a major problem with forecast spending which will not be fully addressed until next year's budget. The forecasts for many significant government agencies do not properly reflect what will actually be needed if the current level, type and quality of services provided by those agencies are maintained.

So, on the one hand the government, via the Budget, sends the message that in the next year's Budget the Minister of Finance will have say, $900 m for new spending –
roughly the figure we will probably have from the 2003 Budget onwards. On the other, much of that is already effectively precommitted to carrying on doing exactly what we are already doing.

The true amount of room to manoeuvre is a great deal less than that. So in a Budget of not far short of $40 billion this year in big round sums the apparent amount of room for new net spending was about $650 million, the real amount probably a fraction of that. Not many are putting up their hands for big tax increases to increase the available headroom. And I am not prepared to see us move back into deficits to provide that headroom since that is, in the end, borrowing from our children to pay for our present desires.

What I want to do is by next year's Budget provide more realistic baselines based on conservative but reasonable assumptions.
This will reduce that headroom substantially and remove the argument of one or two particularly facile politicians that both the previous
and the present government have some sort of slush fund at their disposal they can use for anything at all. The great bulk of that money actually ends up in the hospitals, classrooms and police stations of our country.

Reducing that headroom to a more realistic estimate of what is available for new spending will, I hope, encourage a more responsible and informed approach to policy proposals. Ministers will be encouraged to focus on what their real priorities by seeking savings in lower priority programmes to fund higher priority ones. And the public at large will have to think in terms of similar choices.

As both society and the economy become more complex it is crucial that we encourage informed debate about what we want to do and where we want to go.
Government is too important just to be left to the politicians and if democracy is to be real and substantial then we have to have better ways of facilitating public input into the broad decisions we make. And by that I do not mean just more input for very noisy small minorities.

In the world in which we live that also means recognising the limits on our real freedom of action. That is not to say we cannot do a wide range of things but it does mean recognising that whereas bad decisions used to take a long time to have bad consequences, now the punishment comes very quickly, if not instantaneously. The most obvious way in which this happens is through the operations of financial markets but it is by no means the only way.

The second thing we need to recognise is that it takes time to shift priorities.
That is especially so if we are trying to be constructive rather than destructive. Rome wasn't built in a day but these days you can destroy it in a day.

Much of the politics of the 1980s and early 1990s was about destruction of much of the social and economic framework we had been accustomed to. In a funny way it was quite easy to achieve. But now we are in a constructive phase and that takes longer and does not provide the same kind of quick fix satisfaction. And that is particularly so of Budgets where we are, in effect, trying to shift direction on a number of aircraft carriers simultaneously.

The third fact we need to recognise is that the weight of votes does not always match the weight of needs. We have been encouraged to adopt a more selfish and individualistic set of values over the last twenty years.
The problem with that is that the more we feel we should simply vote for what is in our own personal, immediate self interest, the less likely it is that we will effectively address those problems the solution to which is in all our interests. In that respect I would counsel scepticism towards those who preach the most important thing is low taxes but fail to mention the amount you end up spending on security guards, lawyers, private schools, private health care and all the baggage that accompanies the breakdown of social provision and cohesion.

Let me finish on a few personal notes. As I've said, one of my aims as Minister of Finance is to carry on demystifying and de-emphasising the Budget process.
For me, in the end, the Budget is the Government's annual statement of accounts, not its political manifesto.

For me, too, it is an enormous honour to do the job and every now and then I still have to pinch myself to realise how lucky and privileged I am. And then, of course, I pinch a good part of your money and hopefully do some good with it. But that is for you to judge.


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